Loyalty programs and profitability – part 3 – Key success factors in loyalty programs

A loyalty program in telecom is designed to retain customers by rewarding current consumption and behaviour (through handset replacement and promotions campaigns) while simultaneously enticing new acquisitions to change their behaviour. A combination of effective communications, promotions, perceived reward value and convenience are often the catalyst in predicting a program success. The price / value equation plays a strong role if the loyalty program has a participation cost assigned to it as consumers take more seriously things they have to pay for, although this practice is not spread across the telecom industry.

The following elements must be understood from the consumer’s perspective for a loyalty program to be successful:
1. Actual value of the reward
2. Perceived value of the reward
3. Relevance to the customer
4. Attainability levels
5. Convenience or ease of use

Unfortunately for many operators, loyalty programs are widely misunderstood and misapplied. Rewards are not and should not be positioned as short-term promotional gimmicks with immediate gratification. Loyalty programs are therefore akin to a good marriage, benefits accrue over time and there is a cost associated with leaving. Loyalty programs launched with a short term view will only motivate customers with a short term view and will return a mere fraction of their potential value.

Critical to the success of any loyalty program is the ability to share value with your customer in proportion to the value that the customer brings to the equation. Successful programs will constantly educate customers about the rewards of loyalty (aka handsets) as the key motivator in adoption. The following rules should be followed to develop a successful telecom model:

A. Do not treat your customers as equals: segment your clients in proportion to their value and regardless their typology (prepaid, postpaid).
B. Do not reward your customers as equals: segment your incentives and provide redemption structures based on client’s lifetime and value.
C. Communicate relevance, not noise.
D. Create more value for the customer than for the operator.
E. Focus on the long-term relationship and not a quick fix.
F. Be creative and differentiate in the value proposition (handset diversity, airtime, alternative partners and promos, third-loyalty programs integration, etc).
G. Target customers with a high value (in both ARPU and CLT).
H. Keep you promises.

Next chapter: Understanding the economic traps.